3.) The Steem team created clever ways to reduce spam and align long-term incentives within a digital currency community
Spam is an issue all social networks face and making sure the quality content rises to the top can be difficult. Steem allows the quality content to rise to the top by implementing a weighted voting mechanism (the higher one’s reputation on the platform is, the more their vote matters). Spam has not been as bad as I expected as a result of the clever voting mechanism and reputation algorithm.
An issue all crypto tokens need to deal with is greed and short-term speculation. Steem reduces this by implementing Steem Power, a vested type of Steem that is locked up for 2 years. Those that believe in the platform long-term can choose to “power up” to Steem Power. Those that wish to get liquidity short-term can “power down” to Steem. As a result, the short-term price of Steem isn’t as much of a focus in the community as it is in other crypto communities.
As with all early stage ventures, there’s a lot of risks and things that could go wrong on Steem. Here are the potential failure modes as I see them:
1.) The founders may own too much of the token
Right now, the founders of Steem own approximately 80% of the total outstanding token value (see http://steemwhales.com/
for details). While that ownership level is not unheard of for a startup, Steem is a protocol not a startup. Such a high ownership level means that the top whales have a disproportionate ownership of the token and impact on the content that surfaces on the platform. They may not be well equipped to surface the best content and new services may not be willing to integrate Steem because of the control it would be giving to the Steem whales. Other social networks may rather fork a new version of the protocol, which would minimize the long-term success of Steem as a protocol.
2.) The monetary policy may be off
Steem, just like Bitcoin, is an economic experiment that has never been attempted before. Creating three different tokens (Steem, Steem Power, Steem Dollars), and assigning different inflation and interest rates associated to each is very complex and does not have any historical analogues.
The infinite supply of Steem and Steem power means that Steem assets lack digital scarcity, one of the core characteristics of Bitcoin. It’s possible that an infinite but predictable money supply may be more appealing to users than an unpredictable but infinite money supply (all central bank issued currencies). In that case, while Steem may be inferior to Bitcoin from a monetary policy perspective, it could still have a niche use case. Even the most seasoned economist could not say for sure whether it will work or not and the great thing about digital currencies is for the first time economists have a test ground for new ideas.
3.) Steem may have gotten too big too soon, which could lead to the security of the network or services on the network being compromised
Steem quickly emerged from idea to live mainnet in a matter of 6 months. The total market value of Steem is now north of $200M and such fast growth inevitably attracts hackers who will attempt to break the system and steal funds. The same could be said about all new blockchains that emerge quickly, but its definitely a risk to be aware of..
It’s too early to write Steem off, but also too early to bet big on it
Overall, I think Steem is worth keeping an eye on in the coming months. If interested, there’s lots of good resources to track progress on the ecosystem:
, which tracks user growth and engagement in the ecosystem
, a blockchain explorer
, which makes it easy to create Steem lists